As a full-time real estate investor, we have a limited amount of time in the day to be overseeing our portfolio. We may have a property manager but even still, we have a responsibility. We must maintain tenanted properties by using successful landlording practices in order to grow our portfolios.
If we have a property manager, we cannot just let our hands bee completely of the properties that we have and not think about them. I like to ask people a question. If you had a beautiful Ferrari worth $200,000 that was parked in an underground garage somewhere during the winter, wouldn’t you go see it from time to time, even when you are not driving it?
Well I can only assume that the properties that you have tenants in are at least worth $200,000 (some may be less) but my point is that this is an asset that you have. Please take time to go look at it, perhaps check the condition it is in, etc.
Speaking of the conditions of the property, we must be very cognizant of how our property is being maintained. Obviously we don’t have time to maintain all of our properties. We need to be utilizing our time in the best way, which is finding more deals.
So how do we keep the grass cut, the snow removed, walkways salted and the garbage out on the curb on a regular basis without doing it ourselves? Well obviously we need one of the tenants to do it for us…right? But what’s their incentive?
A Common Mistake
Can we offer the tenant money to do that? Of course.
Should we take money off their rent for doing this? The answer is…no.
This is a common mistake among real estate investors and I tell you that is the wrong way to do it. Why? The answer is two-fold.
Firstly, when you take money off the rent; for example if the rent is 750 a month and you tell the tenant to pay you $700 for the work they have done, what you are doing is devaluing the income of your property. Therefore when you go to sell it next time, you won’t have the rent roll to support a higher price.
Secondly; if the tenant decides they can’t do the work anymore and you want to charge them the $750 again, the tenant may go to the landlord/tenant board pleading his case saying “I’ve been paying 700 rent for the past number of months and now for whatever reason now the landlord wants to charge me 750.” They will actually win their case, and the tenant will get a judgment that his new rent is indeed and will stay at $700.
The proper approach is to have the tenant pay $750, then cut the tenant a cheque for $50, or whatever you have decided upon. This does three things:
1. You can inspect the work done before paying,
2. Your income for the property is what it should be,
3. And most importantly, the cheque you cut to your tenant is a business expense, whereby you can write off that amount.
So please landlords out there, if you are taking money off the rent, please have them pay you properly and cut them back a cheque every month only AFTER inspecting or substantiating the work has been done to your satisfaction.
So how is this getting the work for free? Depending on your tax situation it could turn out to be free, almost free or even make you money. Here’s why: The fact that you are “expensing” the work by cutting a cheque means you can claim this monthly fee back on your taxes, which ultimately diminishes your taxable income. Depending on your tax bracket, this fee could turn out saving you as much or more on your taxes.
Plus , the amount you can sell your property for may be slightly more as a result of having a higher rent roll. Not a slam dunk, but it all helps, right?
Good luck to all you landlords!
Putting Your Tenants to Work